Court Finds No Compensable “Taking” from Egg Producer

The Federal Circuit Court of Appeals has determined that a U.S. Department of Agriculture (USDA) Salmonella rule, which interfered with an egg producer’s sales for about two years, was not a compensable taking under the Fifth Amendment. Rose Acre Farms, Inc. v. U.S., No. 07-5169 (Fed. Cir., decided March 12, 2009). The case involved emergency regulations adopted in 1990 that restricted the sale of eggs from farms identified as infected with a type of Salmonella bacteria. The regulations diverted the eggs from three of Rose Acre’s farms from the table to other uses, such as in cake mixes, for 25 months and thus purportedly reduced the company’s profits. The company brought several lawsuits against the government, and the various issues raised were appealed several times.

This appeal involved the “takings” issue only and was before the Federal Circuit for the second time. Under the Fifth Amendment, the government must compensate private property owners when their property is “taken” for the public good. The district court twice ruled that Rose Acre was entitled to damages in excess of $8 million. The appeals court determined that the lower court did not rely on the correct economic analysis when it decided that the USDA regulations, by diminishing the company’s returns 219 percent, had a significant economic impact on Rose Acre, because the lower court measured lost profits rather than the much smaller diminution in the eggs’ value.

The court concluded that its factual findings “require a holding of no compensable taking. First, Rose Acre’s economic impact is not severe. Second, although the reasonable investment-backed expectations favor Rose Acre, they are not strong enough to be dispositive. Third, the character of the government’s regulations strongly favors a non-taking.” As to the latter finding, the court explained that food safety “is the type of regulation in which the private interest has traditionally been most confined and governments are given the greatest leeway to act without the need to compensate those affected by their actions.”

Further noting that the court’s objective under the Fifth Amendment is to ascertain whether “it is unfair to force the property owner to bear the cost of the regulatory action,” the court found that, given an approximately 10 percent lower market value for Rose Acre’s eggs, the regulations properly placed the burden on the company “to bear the costs associated with ensuring that their eggs did not injure the public.”